Recent Field of Membership Letters to Federal Credit Unions
The NAFCU compliance team has blogged about field of membership a couple of times over the past few months. The first blog provided an update on the litigation between the American Bankers Association (ABA) and the National Credit Union Administration (NCUA)—litigation that was resolved when the United States Supreme Court denied the ABA’s writ of certiorari and refused to hear an appeal of the decision by the United States Court of Appeals for the D.C. Circuit in which the NCUA prevailed. The second blog discussed NCUA’s final rule, published in September, that permits credit unions applying for approval of a community charter, expansion, or conversion to designate a Combined Statistical Area (CSA) or a distinct, adjoining part of a CSA as a well-defined local community as long as the area has a population of 2.5 million or less.
In the past month, NCUA has issued two letters to federal credit unions, 21-FCU-01 and 21-FCU-03, providing additional guidance to federal credit unions about field of membership issues. The first letter did three things. It provided three templates that federal credit unions can use to convert to or expand a community charter:
- A business and marketing plan that can be used when a noncommunity charter federal credit union seeks to convert to a community charter or an existing community charter intends to add more than one neighboring area;
- A streamlined business and marketing plan that can be used when an existing community charter intends to add a neighboring area;
- Pro forma financial statements to be used by federal credit unions seeking to convert to a community charter.
NCUA noted that federal credit unions seeking to expand an existing community charter do not have to submit pro forma financial statements; however, NCUA indicated that submission by an existing community charter may strengthen its expansion request.
The first letter also explained what may be required when a federal credit union seeks to provide services to a single political jurisdiction, which includes “a city, county, or portion of one; a combined statistical area or core-based statistical area, or a portion of one that has a population of 2.5 million or less; a rural district with a population of 1 million or less; or an area the NCUA previously determined is a local community . . . .” The letter noted that these constitute presumptive communities. NCUA advised that credit unions applying to provide services to these types of communities do not need to show common interests or interaction. With other types of communities, those that are not presumptive communities, NCUA instructed credit unions to “follow the guidance in Letter to Federal Credit Unions 18-FCU-02, Requests to Serve a Well-Defined Local Community Using the Narrative Approach, to establish how an area qualifies as a local community and submit the documentation with the required business and marketing plan.”
The first letter also provided guidance about what credit unions should do if they elect to exclude a core area from the community they intend to service. A core area is defined “as the most populated county or named municipality in the area.” If a federal credit union intends to exclude a core from the community it intends to serve, NCUA advised credit unions to document why the core was excluded in the business plan. NCUA also recommended that “[m]anagement should base the explanation on sound legal and business judgment.”
The second letter solely related to multiple common bond credit unions and their expansion of services to underserved areas. NCUA’s stated purpose behind the letter was to encourage multiple common bond credit unions to expand their services to cover underserved areas. The letter included the definition of what constitutes an underserved area: “[A] local community, neighborhood, or rural district that meets the definition of an investment area under section 103(16) of the Community Development Banking and Financial Institutions Act of 1994, 12 U.S.C. 4702(16), and is underserved by other depository institutions based on data of the NCUA Board and the federal banking agencies.” Separate NCUA guidance explains that one way to determine whether an area is underserved is to review the Consumer Financial Protection Bureau’s underserved county list. The second letter merely provided links to existing NCUA guidance, including webpages about how to create a business plan to serve underserved areas and how to format financial statements.
Both letters urged credit unions to contact the Office of Credit Union Resources and Expansion at 703.518.1150 or dcamail@ncua.gov if they had questions about either letter.